Ethereum vs. bitcoin: What’s the difference?

Bitcoin and Ethereum are both cryptocurrencies, but they're quite different

BTCKeychain/FlickrCryptocurrencies can be a little confusing. Are they digital money or more like gold? Are they a new way to pay for things online or a way to store value? Those aren’t easy questions to answer when you’re talking about hundreds of different cryptocurrencies, some old, some new, and some very different from the rest. When you focus Ethereum vs. bitcoin, though, there are some stark, obvious differences.

Their age is the most obvious, with bitcoin having entered this world as the very first global cryptocurrency in 2009 and Ethereum only showing up in 2015 as a potential alternative. Although it is less proven than its predecessor, Ethereum does have a few nifty features which give it a lot more potential than its older sibling in some key areas. For the purpose of this guide, we’ll look at two shared aspects of the cryptocurrencies: Their ability to act as a store of value and as transactional mediums. We’ll also take a look at some of the unique features which make them stand apart.

As a store of value

The most successful cryptocurrency for storing value continues to be bitcoin. As the most valuable coin in the world by quite some margin — and the progenitor of the entire cryptocurrency revolution — bitcoin has proven itself. It’s far more recognized than any of its peers, and that makes it easier to buy, store, and sell.

That’s not to say that Ethereum and its coin, Ether, have been ineffective. For such a young currency, Ethereum has proved to be one of the most popular. At the time of writing its market value and 24-hour trading volume are second only to Bitcoin. The actual monetary value for a single “ETH” however, is less than five percent of bitcoin, so owning a few Ether is no way near as pleasant as owning a few bitcoin.

Part of that is down to bitcoins’ built-in scarcity. There is a hard limit on the eventual number of bitcoins, with diminishing returns for miners as they approach that mythical 21 million mark. One day no more bitcoins will be created, and no matter how many end up being lost, no more will be made. Thanks to supply and demand, that means bitcoin should, in theory, grow in value, at least until no more coins appear.

In comparison, Ethereum will continue to release the same amount of Ether on a regular basis forever, so its supply will remain constant and expanding.

Cryptocurrencies are nothing if not volatile, though, and as much as it seems most likely that bitcoin will remain the king of the cryptocurrencies for the foreseeable future, there is no guarantee of that.

As a transactional medium

Philippe Lopez/AFP/Getty Images

Philippe Lopez/AFP/Getty Images

Although bitcoin is better at storing value than Ethereum, at least for now, Ether has quickly become a preferred method for transferring wealth to and from people and entities. In the middle of 2017, it overtook bitcoin in the number of daily transactions, and that shows no sign of stopping, with more than double the number of transactions taking place with Ether on a daily basis at the time of writing.

This is because Ethereum can be used as a platform for other cryptocurrencies, and also because Ether transactions tend to be confirmed quicker by the blockchain. It’s built to be more efficient than bitcoin, partly through virtue of being a newer and more optimized cryptocurrency. The specifics of it are rather complicated, but if you want to dig into them, there are some great breakdowns that will let you dive as deep as you want to go.

Another advantage of using Ethereum over bitcoin for transactions is that its fees tend to be far lower. Although there is always the potential that Ethereum will face increased fees as it hits the same sort of scaling walls as other cryptocurrencies, that is unlikely to happen in the same manner as it has bitcoin, so fees will likely remain lower for some time to come.

Empowering others

While the main uses of Ethereum and Ether make it quite different from bitcoin, arguably the biggest difference is in the underlying technology itself — and what that means for other cryptocurrencies. Technically, Ethereum isn’t a cryptocurrency at all, but a special kind of blockchain technology that not only powers Ether transfers between people, but can be used to create all kinds of other cryptocurrencies — and it has.

Part of the reason there are so many crpytocoins today is that many of them are built on Ethereum’s underlying technology, even relying on it entirely in some cases. While the specifics of that are beyond the scope of this guide, it’s all possible because of one key feature that Ethereum has that bitcoin doesn’t: Smart contracts.

Where bitcoin supports quite simple scripting (comparatively), Ethereum can handle much more complexity thanks to its smart contract system. It makes it possible to set simple rules which have to be followed, effectively forcing contractual compliance in a manner that would never be possible with a real-world contract, without some sort of middleman.

An example of how that would work, is that it could be used to effectively emulate a crowd-funding website, only releasing a collection of Ether when a threshold has been reached. No Kickstarter company required. Ethereum operates in a manner that is far more decentralizing than bitcoin, even if its monetary impact on the world has yet to reach the heady heights of its bigger and older crypto-brother.

So, which is best?

Jaap Arriens/Getty Images

Jaap Arriens/Getty Images

Although you will easily find people willing to definitively tell you that one cryptocurrency (even outside of the Ethereum vs. bitcoin debate) is better than the other, that would do a disservice to whichever the ‘loser’ is. Both bitcoin and Ethereum have their advantages and like most other cryptocurrencies, which one is right for you is very much dependent on your financial situation and what you want out of your investment.

If you want to buy in to the most proven cryptocurrency with the most developer support, bitcoin is the better of the two currencies. It’s the most expensive out there though and its transaction fees are high, so if you want a big return on what you’re putting into it, you’ll need to have plenty to spend and be patient. Bitcoin has repeatedly swung upwards and downwards in value in recent weeks, and its historic crashes can be devastating for those with big money invested. But as the die-hard fans often say, just “hold.”

If you plan to make more regular transactions, to pay for goods or services, or send cryptocurrency to a loved one, Ethereum is much more manageable. With less of a scaling problem, its blockchain is far more open and you’ll see your currency confirmed far faster. You’ll be charged much less for the privilege too. It’s not perfect, but it’s far better than bitcoin in that respect.

As with all of our coverage of cryptocurrency here on Digital Trends though, if you plan to put money into bitcoin or Ethereum, do your research first. This is still a young venture and the future of any and all of them is far from certain.

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